The History of Mutual Funds

Mutual funds are a method of collective investment where a fund manager uses money pooled from many investors to trade in stocks, bonds, and securities, and then collects and passes on any income obtained through dividends or interest. The history of mutual funds goes back to 1924. It was in this year, on 21st March, that the Massachusetts Investors Trust was founded, having 200 shareholders within a year.

The development of mutual funds took a hit in 1929 when the stock market crashed. Three key pieces of legislation were then passed by Congress that built a solid foundation for mutual funds to grow in the middle years of the 20th Century, including The Securities Act (1933), Securities Exchange Act (1934), and the Investment Company Act (1940). The legislation ensured that investors were provided with a prospectus about the fund, the securities involved, and the fund manager. By 1970 there were 270 mutual funds, claiming $48 billion of assets.

In 1976 the first retail index fund was founded. Initially called the First Index Investment Trust, it is now called the Vanguard 500 Index Fund, now with over $100 billion in assets. Another significant reason for mutual fund growth has been the introduction of Individual Retirement Accounts since provisions were added to the Internal Revenue Code in 1975. There are currently over 8600 mutual funds belonging to the national association called the Investment Company Institute, with over $9.2 trillion of assets.